The New York State Department of Financial Services (DFS) has issued the guidance below on how insurers must coordinate disability income benefits with other available benefits, including when any offsets are allowable or are prohibited.

Insurance Circular Letter No. 1 (2025)

February 18, 2025

TO: All Insurers Authorized to Write Accident and Health Insurance in New York State

RE: Social Security Disability Income, Workers’ Compensation, Employers’ Liability, and Occupational Disease Law Benefit Offset Provisions in Individual, Group, and Blanket Disability Income Insurance Policies

STATUTORY AND REGULATORY REFERENCES:  N.Y. Insurance Law § 3216(d)(2)(E) and (F) and 11 NYCRR 52 (Insurance Regulation 62)

I.  Background and Purpose

The Department of Financial Services (“Department”) has received questions from insurers authorized to write accident and health insurance in New York State (“insurers”) as to whether individual, group, and blanket disability income insurance policies may: 1) limit or exclude monthly disability income insurance policy benefits through estimates of Social Security Disability Income [“SSDI”] or state or federal workers’ compensation,  employers’ liability, or occupational disease law benefits [collectively, “government benefits”] for which an insured may be eligible but is not currently receiving; or 2) require an insured receiving monthly disability income insurance policy benefits to apply for government benefits, and to appeal an adverse determination of eligibility for such benefits.  The purpose of this circular letter is to reiterate longstanding guidance to insurers regarding the types of government benefit offset provisions that are permissible in individual, group, and blanket disability income insurance policies pursuant to New York Insurance Law and regulations promulgated thereunder.

II.  Government Benefit Offsets in Individual, Group, and Blanket Disability Income Insurance Policies

Pursuant to 11 NYCRR § 52.16(c)(8), benefits under an insurance policy may only be reduced by “benefits provided under…governmental program[s], any State or Federal workers’ compensation, employers’ liability[,] or occupational disease law.”   “Benefits provided” means the benefits an insured has actually received under SSDI, workers’ compensation, or employers’ liability or occupational disease law.  See OGC Opinion 06-12-09 (December 18, 2006) (opining that “[t]he exclusion for workers’ compensation benefits in N.Y. Comp. Codes R. & Regs. Tit 11, § 52.16(c)(8) was specifically drafted by the New York Insurance Department to be predicated upon the provision of such benefits, not merely eligibility for workers’ compensation benefits”).  Mandatory government benefit offset provisions that limit or exclude benefits based upon an estimate of what an insured may receive, instead of what an insured has been paid, are not permitted under 11 NYCRR § 52.16(c)(8).  This position was clearly articulated in OGC Opinion 06-12-09 and remains unchanged.

Insurers have asked whether group and blanket insurance policy forms may contain an optional offset provision for estimated government benefits at the insured’s request that includes the insured’s right to opt out of their request to offset estimated benefits at any time.  The Department does not have an objection to policy forms containing such an optional offset provision.

In the event an insured’s claim for government benefits is denied, or an insured chooses not to apply, the insurer must pay the insured the appropriate monthly disability income insurance benefits in relation to the premiums paid by the insured.

III.  Additional Standards for Government Benefit Offsets in Individual Disability Income Insurance Policies

Insurers may use additional approaches to take government benefits into account for individual disability income insurance.  Before issuance, an insurer should determine the appropriate amount of insurance benefits for the insured, taking into account any other insurance the insured may already have.  Additionally, the individual disability income insurance policy may include the optional standard provisions under Insurance Law § 3216(d)(2)(E) and (F) for over-insurance situations after issuance.

Insurance Law § 3216(d)(2)(E) permits an insurer to reduce individual accident and health insurance policy benefits pursuant to a statutory formula when the insured has other valid coverage¹ and the insurer has not been given written notice of the coverage prior to the occurrence or commencement of a loss.  However, any benefits provided pursuant to any compulsory benefit statute, including workers’ compensation benefits, whether provided by a governmental agency or otherwise, will be deemed to be other valid coverage of which the insurer has prior notice.

Insurance Law § 3216(d)(2)(F) allows an insurer to reduce an insured’s individual disability income insurance policy benefits in certain circumstances² pursuant to a statutory formula when the insured’s total monthly disability income insurance benefits for the same loss under all valid loss of time coverage³ exceed the greater of the insured’s monthly earnings or the insured’s average monthly earnings for two years prior to the time the disability commenced.  An insurer is only liable for the proportionate amount of disability income insurance policy benefits as the amount of monthly earnings relates to the total amount of monthly benefits for the same loss under all coverages of the insured at the time the disability commences.  Under the statutory formula, the insurer’s liability is a percentage of the disability income policy benefit calculated by dividing the insured’s total monthly earnings by the total amount of monthly benefits the insured is receiving under all valid loss of time coverage.⁴

If benefits payable for a disability under a combination of the policy and all valid loss of time coverage, such as SSDI or workers’ compensation benefits, do not exceed the insured’s earnings at the time the disability commenced, then the benefit amount specified in the policy must be paid.  If such combined benefits would exceed the insured’s earnings at the time the disability commenced, the insurer may reduce the amount of disability income insurance benefit payable under the policy by the statutory formula with an accompanying pro-rata refund of premium as provided for in the statute.  The total monthly benefits payable under all disability coverages of the insured may not be reduced to less than $200.

Additionally, insurers may issue social insurance substitute disability income coverage that complies with the requirements of Insurance Circular Letter No. 21 (1982).  Social insurance substitute disability income coverage is designed to avoid or minimize the duplication of benefits with defined social insurance programs specified in the individual disability income policy or a rider attached to the policy.  Social insurance substitute disability income policy provisions are typically designed to require an insured to apply for benefits under defined social insurance programs.  The insurer must provide a benefit until the social insurance program benefits become payable, in which case the benefit amount allocated to the social insurance substitute disability income benefit ceases payment immediately.  Insurers should refer to Insurance Circular Letter No. 21 (1982) for additional requirements related to social insurance substitute disability income coverage.

IV.  Application and Appeal Provisions in Individual, Group, and Blanket Disability Income Insurance Policies

Individual, group, and blanket disability income insurance policy provisions that require an insured to apply for government benefits, or to appeal an adverse determination of eligibility for such benefits, will not be approved pursuant to Insurance Law § 3201(c)(3), except for individual social insurance substitute disability income coverage written in accordance with Insurance Circular Letter No. 21 (1982).  The eligibility threshold for SSDI is more stringent than the eligibility threshold for benefits under most disability income insurance policies.  Requirements for an insured to make government benefit claims, even when the likelihood of success is low, serve as a hardship on an insured.  Additionally, an insured may incur expenses to pursue an appeal.  In lieu of a mandatory requirement, insurers may offer to assist insureds with applying for government benefits and appealing an adverse determination of eligibility for such benefits.  Any program to provide assistance to insureds with applying for or appealing denials of government benefits must be described in the policy form.

V.  Conclusion

Disability income insurance policy provisions that limit or exclude benefits based upon an estimate of what an insured may receive under government benefits are not permitted under 11 NYCRR § 52.16(c)(8), and the Department will not approve them.  Additionally, an insurer may include in an individual disability income insurance policy the optional standard provisions under Insurance Law § 3216(d)(2)(E) and (F) for over-insurance situations after issuance, and an insurer may issue social insurance substitute disability income coverage if it complies with the requirements in Insurance Circular Letter No. 21 (1982).  Insurers should also be aware that this circular letter applies to any accident and health insurance policy to which 11 NYCRR § 52.16(c)(8) and Insurance Law § 3216(d)(2)(E) and (F) apply.  Insurers should take appropriate steps to review their policy forms for compliance with 11 NYCRR § 52.16(c)(8) and Insurance Law § 3216(d)(2)(E) and (F) and, if revisions are necessary, submit any revised policy forms or amendments to the Department’s Health Bureau for review and approval within 60 days of the date of this circular letter.

Please direct any questions regarding this circular letter by e-mail to: health@dfs.ny.gov.

¹ Pursuant to Insurance Law § 3216(d)(2)(E), “other valid coverage” must be limited to coverage provided by organizations subject to the Insurance Law or by insurance authorities of this or any other state of the United States or Canada, and to any other coverage the inclusion of which may be approved by the Superintendent.  In the absence of such definition, such term shall not include group insurance, or benefits provided by union welfare plans or by employer or employee benefit organizations.  Any amount of benefit provided for the insured pursuant to any compulsory benefit statute (including any workers’ compensation or employer’s liability statute) whether provided by a governmental agency or otherwise must in all cases be deemed to be “other valid coverage” of which the insurer has had notice.  No third-party liability coverage may be included as “other valid coverage.”

² Insurance Law § 3216(d)(2)(F) may be inserted into a policy that the insured has the right to continue in force by paying premiums until at least age 50, or for a policy issued after age 44, at least five years from the date of issue.

³  Pursuant to Insurance Law § 3216(d)(2)(F), “valid loss of time coverage” must be limited to coverage provided by governmental agencies or by organizations subject to the Insurance Law or by insurance authorities of this or any other state of the United States or Canada, or to any other coverage the inclusion of which may be approved by the superintendent or any combination of such coverages.  “Valid loss of time coverage” may be defined by the insurer to include coverage provided under workers’ compensation insurance.  In the absence of such definition, “valid loss of time coverage” may not include any coverage provided for the insured pursuant to any compulsory benefit statute (including any workers’ compensation or employer’s liability statute), or benefits provided by union welfare plans or by employer or employee benefit organizations.

⁴ For example, if the insured’s total monthly earnings are $3,000, and the total amount of monthly benefits the insured is receiving under all valid loss of time coverage is $4,000 ($1,000 from insurer A and $3,000 from insurer B), then under the statutory formula each insurer’s liability is $3,000/$4,000, or 75% of the monthly policy benefit.  Therefore, insurer A’s liability is 75% of $1,000 and insurer B’s liability is 75% of $3,000, and both insurers must provide the insured with refund for the portion of the premiums attributable to the excess coverage.